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Will Google Skype In
I’ve been doing a lot of thinking about Skype and Google lately. Of course Skype is a peer-to-peer (P2P) voice over IP (VOIP) Company that provides free digital telphony between members of its network over a broadband connection. It’s like Vonage and other VOIP companies in that you can call out to (Skype Out) and receive calls from (Skype In) traditional voice devices for an additional fee. The Skype client provides messaging, file transfer and voice communications between users on Linux, Mac OS, Windows and Windows CE.
Several weeks ago Bob Cringley reported that Rupert Murdoch was possibly in discussions to acquire Skype for approximately 3 billion dollars. As it turned out Skype didn’t sell.
Google announced this week plans to raise an additional 4 billion dollars through a public stock offering. That’s enough additional cash to fund further
organic expansion; Google already has 3 billion in reserve. So the question arises: what are they going to do with $7 BB in cash reserves?
Google has recently started to leak plans related to “network construction”. I don’t mean IP or broadband, I’m talking about P2P. Up until now Google has focused on edge products for the networked masses. Products like search, ad placement, mapping, blogging and mail just to name a few. Sure they’ve built a subscriber base surrounding these technologies but what they lack is the real-time connection between these subscribers. The likely next ‘network’ step is for Google to erect a P2P network a la AOL, MSN & Yahoo. The question is not if but how; do they build or buy.
That’s the Skype connection. Skype was founded by Niklas Zennström and Janus Friis, the gentleman who built the Kazaa P2P file sharing network. Skype has been downloaded over 152 MM times since its release about 14 months ago. At the moment there are 3.2 million Skype users online.
Since its inception Skype has been running on venture money. The company is generating a small amount of revenue (estimates of about $26MM) through their Skype In/Out services. This run rate, while impressive for an early stage company, isn’t going to provide sufficient organic growth to compete in the long term with the VOIP enable telcos on their turf.
So it’s logical for Google to pursue Skype. The $3BB offer that Murdoch purportedly made can be sweetened as needed. It’s a marriage that would be perfect for both camps. Skype provides Google with the network it needs to transport ads to other network touch points like mobile devices. Google provides Skype with a similar culture and the proclivity for innovation and execution.
The next step for Google is to ride on top of the emerging Wireless broadband network. Skype on phones networked within a meshed WiMax (or similar) network. They may build, buy or partner in order to get that done. Regardless, it will come and why shouldn’t Google provide it?
With several strategic acquisitions Google can extend their market penetration to compete Verizon, SBC and the other telcos while entering turf that is now controlled by AOL, Microsoft and Yahoo. As an emerging giant Google has the ability to fly well below the radar screens of the FTC and achieve something Microsoft can’t. It’s probably time for Google to spend some of its financial and political capital in order to grow.
What do you think?
I don't understand why Skype required VC funds when Kazaa's owner had enough availble to him already. I have never seen Google make such a large acquisition. The trend these days is to aquire small startups worth 1-11 million dollars, so I doubt it will happen. Cheers.
Jawad Shuaib
Published: August 25, 2005 02:36 PM
Google needs to stick with making products that are so compelling and easy to access that it doesn't matter what network they are on... People will demand Google searching from their wireless phones, cable, dsl, etc. whether or not Google owns the path or not. There is an obsolesence that comes from ubiquity. IE doesn't matter anymore. I was recently at a friends house and the browser that was open was firefox. I didn't care, I was still able to get to the Google site.
The network may be the computer, but the computer no longer matters. When everyone has broadband it won't matter. But better information will always have long term value.
stephen l. moore
Published: August 26, 2005 12:27 PM
One question: what's the rationale for Google to enter a commoditized, fast revenue declining, highly competitive market like traditional telephony?
Don't they have enough growth prospects with content and other stuff directly connected to their core business?
Published: August 29, 2005 08:46 AM
4 billion dollars. Hmmm, wouldn't it cost just about that much for Google to buy out all of Baidu?
Published: August 30, 2005 10:25 PM
Baidu buyout sounds very interesting...let me think about that for a while.
Chuck
Published: September 2, 2005 11:07 PM
VOIP will compete heavily with cellular in the not to distant future. The portal companies recognize this and want to prepare to further monetize their directory of IM and email users.
Google gets it.
=Chuck=
Published: September 2, 2005 11:10 PM
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